Helping Your Employees Be Their Best Selves

There is no single correct way to teach business ethics. A common approach combines philosophy and character development. Teachers impart philosophical concepts for resolving difficult ethical issues and encourage students to develop and hone strength of character to give them the means to actually implement the solutions that develop.

Any regular reader of this blog knows that I am a strong advocate for adding a third approach, once based in psychology. I believe that one of the most intractable problems in the business community is good people doing bad things, often while still strongly believing that they are good people. As I was driving to the office to write this blog entry, I heard a former white collar criminal, Walter Pavlo, on the Moth Radio Hour describing how he thought of himself as a “good guy” even in the midst of a $6 million embezzlement scheme victimizing his employer, MCI.

Many of the cognitive and psychological shortcomings, situational factors, and social and organizational influences that make it difficult for people to always live up to their own ethical standards can also cause people to make irrational and self-defeating decisions in other areas of their lives as well. Experts in the field have suggested taking advantage of our new knowledge of the systematic biases in human decision making in order to “nudge” people in various ways to make better decisions. Governments have taken advantage. The Obama administration appointed behavioral economist Cass Sunstein as the Administrator of the White House Office of Information and Regulatory Affairs. And UK Prime Minister Cameron created a Behavioural Insights Team to “draw on the insights from the growing body of academic research in the fields of behavioural economics and psychology which show how often subtle changes to the way in which decisions are framed can have big impacts on how people respond to them.”

Because all things being equal people prefer the status quo, a government can increase by a large percentage the proportion of people who are willing to donate organs upon their death. How? They simply presume on legal documents, like a driver’s license, that people agree to donate upon their deaths. Rather than requiring people to opt-in to donate, they presume intent to donate unless the people opt out. And because people tend to be loss averse, school districts can more effectively incentivize teachers by giving them a bonus that will be reclaimed if certain goals are not met than by giving them the bonus only if the goals are eventually met. Teachers are more strongly motivated to avoid the loss of the bonus that has been awarded to them than they are to earn the bonus in the first place.

It turns out that firms can use psychological knowledge to nudge employees to act more ethically. By having employees swear to the truth of a document, such as an expense report, before filling it out rather than after, employers can dramatically improve the accuracy of the reporting. Priming employees to write down the Ten Commandments or even just to unscramble religious words reminds them that ethics is something they should consider and increases honest behavior.